Shops are suffering the worst slump for 25 years as family budgets are stretched to breaking point.

The bleak findings in a report by business leaders suggests shoppers are being squeezed by spiralling food and fuel bills.

And experts warn it means the economy is in grave danger of grinding to a halt unless the Bank of England cuts interest rates.

In the CBI poll, 61 per cent of stores said takings for the first half of July were down on last year.

While 25 per cent reported higher sales the negative balance of 36 per cent was the worst since the survey started in 1983.

Most traders expect the struggle for business to continue in August despite discounts of up to 70 per cent in the summer sales.

CBI spokesman Andy Clarke, who is also a director of Asda, said sales of furniture and carpets were hardest hit together with other "big ticket" items for the home. "It is turning out to be a very grim summer for many retailers," he said.

"Pressure from higher fuel and food prices is prompting many people to rein in their spending." The property market had "depressed" sales of home furnishings and white goods, he added.

Bank of America economist Matthew Sharratt said the figures suggested the economy could "lapse into a mild recession", triggering a rise in unemployment.

"As a result, we expect spending will, at best, stagnate over the next year or so," he said. Howard Archer, chief economist at Global Insight, said the CBI survey was a "real shocker" and followed a "very sharp" fall in June sales.

"Consumers are now reining in their spending amid increased concerns over the economy," he said. The data boosted the case for the next move in interest rates to be down, he added.